WTO entry a long term boost for Russia, says Eastern Europe analyst

By: Anna Fedorova | 28 Aug 2012

Russia’s accession to the World Trade Organisation last week after two decades of negotiations positions the country for significant long term growth, according to David Reid, analyst for the UK domiciled Eastern European Trust.

“Almost all the countries that have joined in the past have experienced sustained improvements in foreign direct investment and economic growth,” Reid (pictured) said.

“China’s entry in 2001 is often held up as one of the big success stories, but the Eastern European region can also boast a record of success including countries like Poland, Hungary and the Baltic states.

“This is a historic development, but we are not anticipating miracle results in the short term. Only a certain proportion of reforms are immediate, with the rest being phased in over a period of several years. Ongoing work by the government is required, but the WTO accession agreement is a powerful ‘anchor’ for policy that should ensure the direction of travel is firmly positive.

“Many sectors stand to benefit from this accession. For example, many export industries where Russia has a competitive advantage – such as steel and chemicals – will have easier access to foreign markets. The consumer sector will also benefit from higher employment and wages as foreign investment in the economy takes effect.

“But there will be a handful of areas, such as some agriculture and auto manufacturing, that have to adjust to the steady reduction of protectionist measures. The companies that come out of this process will be stronger and leaner than they are today.”

Reid notes, however, that the direct effects of WTO accession is only half the story. “Greater competition and lower tariffs will improve the quality and cost of goods and services, freeing up resources across the whole economy for additional investment and consumption. Over the long term, these effects are likely to be even more powerful than any direct impact of accession.

“Perhaps the most important point to note is that Russia’s accession comes after 18 years of talks, which could easily have dragged on for longer. Russia’s leadership has decided now is the time to send a signal to the world that it is finally serious about engaging with global commerce, a key message to take away from these events.

“The Russian equity market is very close to historic lows in its valuation, both compared to its own history and to other emerging markets. This is in spite of the fact that the economy has been growing steadily since the crisis and has achieved record low inflation and unemployment levels this year.

“WTO accession will help to highlight the country’s strong investment fundamentals and the market deserves renewed consideration from investors.”